BHP talks up fracking payments for farmers

BHP Billiton
’s petroleum boss has waded into the debate about compensation for landowners in Australia, pointing to the generous pay deals for farmers in the US which have underpinned the boom in shale gas exploration.

While US landholders receive royalties for shale gas exploration because they own the oil and gas trapped under their properties, Australian property owners are only entitled to compensation for disturbance.

“The US is blessed by the fact that the royalty owners want us to be there. I cannot stress enough how important that is,"
Mike Yeager
, chief executive of BHP Billiton Petroleum, told the World Shale Conference in Houston yesterday.

“You go to Europe, you do not have that. You go to Australia, you do not have that. You go to South America, you do not have that."

Claims of inadequate compensation for landowners in eastern Australia have fuelled opposition from some farmers to the country’s $70 billion coal seam gas industry.

Shadow minister for regional development
Barnaby Joyce
has been at the forefront of political calls for better pay to Australian farmers affected by the sector. He visited the US in July and came away believing Australian farmers, who mostly do not own the resources under their land, deserved a better deal from companies seeking to exploit them.

Mr Yeager said while geology always came first, “Can you get the business done or not?" was the second question onshore developers had to ask. US companies seeking to develop the resources negotiate and pay a royalty – usually between 10 and 25 per cent.

“When we go out here [in the US], and you talk to a farmer with 120 acres, and you want to drill a well on his property, he gets 25 per cent of the revenue," Mr Yeager said. “It depends on whether it’s oil or gas, or [whether] I’m the only one asking or three people are asking. It’s just basic," he said. “It allows people to want you to be there."

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Payments depend on supply and demand factors and can include royalties, advance payments and payments for water.

Australian landholders can get small one-time payments but usually are not entitled to any royalties, which instead go to state governments.

But
Santos
, which is developing the $US18.5 billion Gladstone LNG project in Queensland, said landowners were sharing in the benefits of strong industry growth. Santos has boosted compensation for NSW landowners affected by its coal seam gas operations with a more generous package than in Queensland because of the more intensive agriculture typical in the state.

“We’re talking to farmers right now and we’ve had a very good buy-in," said Santos vice-president for eastern Australia,
James Baulderstone
. “They now see that they get upfront money, they’ll get money if we are successful and it’s proven to be just what they are asking for which is more participation in the upside of the industry."

RBC Capital Markets energy analyst Andrew Williams said increasing the compensation for landholders in Australia would only boost the cost of gas projects and still would not result in all farmers being prepared to welcome unconventional gas drillers onto their land. “There are always going to be issues around land access and compensation," Mr Williams said.

The Australian boss of ConocoPhillips, which has coal seam gas assets in Queensland and is undertaking shale gas exploration in Western Australia, this week called for more work to be done to address the community’s concerns about unconventional gas, more transparency by industry about its operations, and best practices around drilling wells. Todd Creeger said only co-operation between industry and government to deliver those objectives would allow Australia to access its “copious" shale gas resources.

The development of shale gas in America -- alongside an increase in conventional oil -- has transformed the country’s industrial competitiveness. Energy expert Daniel Yergin estimates it has already added a million jobs in America. From fearing that it would be increasingly dependent on importing oil and gas from unfriendly regimes as recently as six or seven years ago, the US has cut its dependence on imported oil from more than 60 per cent in 2005 to 45 per cent last year.

Mr Yeager said BHP Billiton alone had paid $US600 million to landowners and state governments as a result of its US onshore gas and oil activities in the past 12 months.

The company has acreage in four large shale deposits stretching from Louisiana and Arkansas to Texas – Fayetteville, Haynesville, Eagle Ford and the Permian Basin. The miner took a $US2.84 billion write-down on Fayetteville due to the gas glut, but expects the oil and gas output of Eagle Ford alone to match its offshore production in the Gulf of Mexico and Australia within five years.

Royalty payments were an important part of the company’s engagement, Mr Yeager said. This included a commitment to be in the top tier for safety, water and environmental performance and a “good neighbour" policy under which employees joined the communities in which they worked and the company gave 1 per cent of pre-tax profits to community activities.